To avoid further debt in foreign currency, they cancel the possibility of buying letters in dollars with pesos

Yesterday, the government defined the orientations of the financial strategy for 2019, a plan by which it intends to contribute to the development of the local capital market and ensure "the financing of the needs of the Treasury at the lowest possible cost in the medium and long term".

The action plan, widely anticipated a few days ago by spreading a calendar of application composed of 33 auctions to place in dollars the Treasury bills (Letes) and the treasury bills capitalized (Lecap) in pesos (
http://www.argentina.gob.ar/hacienda/licitaciones) and announce the reenactment of the figure of "market creators", now adds a new definition to clarify that the next month is suppressed the possibility of existing until now to buy with weight instruments that the

State paid in dollars.

This mechanism has been widely used by the most experienced investors in Letes tenders and for the future purchase of dollars at a price lower than that prevailing in the market, with spreads sometimes exceeding 3% in the measure. where they have subscribed to a type of contract. wholesale change defined one day before the closing of the receipt of tenders. That should have been the case, when the exchange rate fluctuations had favored it, many investors settled in dollars to buy in pesos an instrument allowing them to add to 3 or 6 more months of dollars and capture a rate interest.

For all these reasons for badysts, it was a risky shortcut in official funding, as it encouraged the imbalance of currencies, increased the public debt in dollars and even favored some kind of "false exchange intervention," explains on Twitter. economist Julio Pierkarz who, along with other operators and badysts, appreciated the determination adopted by the Ministry of Finance.

The document outlining the financial strategy for 2019 proclaims that the government will seek to "increase the share of debt denominated in local currency", but specifies that this will not mean that "the elimination of the program Letes in dollars in the medium term" high proportion of savings "in this currency.For this reason it was closed the way to arbitrate dollar pesos by debt instruments, but the opportunity to buy dollars with instruments such as Lecap will be maintained.

In these terms, it justifies the government providing "a short-term dollar savings instrument" on the grounds that it "contributes to the stability of financial variables and capital flows", and states that 13 Only half of this debt – reduced to one-third of the half of the year and standing at around $ 12,000 million – remains in the hands of foreign investors.

The desire to deepen and improve access to the local capital market stems from the inability to continue to finance abroad and the need to obtain financing. resources, with IMF funds covering only 54% of total funding requirements. scheduled for next year.

Therefore, one of the objectives of the plan is "to deepen the development of an active, liquid and transparent LECAP market, dominated by investors not belonging to the central government administration", for which it will provide in the instrument market combine maturities of 3, 6 and up to 18 months, converging to a maturity profile with similar amounts at each date, and migrating over time to longer-term instruments, contributing to the development of the BOTE curve "

But to the extent that lower inflation and domestic interest rates permit, it is migrating to longer-term instruments. In this sense, to encourage its integration into investment portfolios, the government has indicated that it will only offer 4 formats:

• (I) Capitalizable Treasury Bonds of up to 18 months (LECAP);
• (II) Treasury bills adjusted by CERs for a maximum of 18 months (LECER);
• (III) fixed rate Treasury bonds with a term of more than 18 months (BOTE);
• (IV) REB-Adjusted Treasury Bonds of Over 18 Months (BONCER)